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Prashan Karunaratne

First Name: Prashan
Surname: Karunaratne
Department Dept of Economics
Supervisor(s): Prof. Lance Fisher ,

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Paper Title

An Import Demand Function for the Australian Economy using Vector Autoregression Techniques

Purpose

To build a model that explains the determinants of Australia’s import demand, and to observe the predictions of this model by exposing it to various exogenous shocks.

Originality

The approach is a vector error correction mechanism that has not been performed on Australian data to construct an import demand function. Export swill be included as an explanatory variable to establish this function for imports.

Key literature/theoretical perspective

The underlying economic theory in constructing an import demand function is based on the theory of an excess demand function.

Design/methodology/approach

Using Vector Autoregressive techniques, a Vector Error Correction Mechanism will be built. This will then be shocked by varying certain variables to produce impulse response functions to observe how the model reacts.

Findings

Preliminary findings conclude that there exists a cointegrating relationship between the variables under consideration.

Research limitations/implications

A cointergrating relationship is vital to building the model in the way that has been envisioned.

Practical and Social implications

Australia’s export-oriented mining industry is dependent on imported capital equipment from overseas. Policymakers will benefit from understanding the relationship between our mineral exports and our capital imports.

Keywords

Import Demand, Vector Autoregression (VAR), Vector Error Correction Mechanism (VECM), Macroeconometrics, Australia